KUALA LUMPUR, Oct 5 — Malaysia needs to take steps to ensure the competitiveness of its freight industry, including removing, amending, or reviewing legal provisions, some of which can be unnecessarily restrictive for the industry’s growth.
This includes removing the authorities’ power to set freight rates, in line with the current practice where rates are determined by the market in order to ensure price competition, said the Organisation for Economic Cooperation and Development (OECD).
In its “Competition Assessment Reviews: Logistics Sector in Malaysia 2021” report released today, the OECD highlighted several factors which could affect the sector’s competitiveness.
Among other things, it also noted that the road freight transport sector has set out minimum capital requirements to enter the goods vehicle sector in the country.
For example, an operator applying for a carrier licence A needs to have accumulated capital of 30 per cent of the cost of the vehicle to be purchased.
Meanwhile, for individuals and partnerships and private limited companies (including limited companies and cooperatives), the paid-up capital must be not less than RM250,000.
To be granted a container licence, the company’s paid-up capital must be not less than RM500,000, while the accumulated capital must be equivalent to 30 per cent of the value of the vehicle to be purchased.
The provision aims to ensure that a company has enough capital to operate as a freight transport operator, while protecting consumers and creditors from risky and potentially insolvent businesses.
Nevertheless, the OECD opined that such a requirement would be harmful to competition and may increase the entry cost of new companies, discourage investments and market entry, and reduce the number of operators in the market.
“(These requirements) may notably restrict the entry of small and medium enterprises and may have a discriminatory effect in favour of larger operators while having a direct impact on choice and product quality for consumers.
“The OECD understood that certain stakeholders believe that these specific capital requirements do help to ensure safety, noting that if hauliers do not have sufficient capital, they may compromise on safety.
“However, capital does not guarantee that a company has sufficient assets to invest in safety. Alternatively, an insurance requirement or bank guarantee could be introduced,” it said.
It added that Malaysia should remove specific capital requirements for freight transport as there appear to be insufficient reasons as to why this sector is singled out.
In the report, the OECD made 63 recommendations on specific legal provisions that should be removed, amended, or reviewed based on an analysis of selected Malaysian legislation, stakeholder interviews, and desk research on the logistics sector.
The report also recommended removing unnecessary criteria in renewing a commercial vehicle operation licence, such as business viability.
Besides that, it said a single licence should be created for the carriage of both general cargo and containers so that operators could acquire a single licence for a single vehicle and operate more efficiently.
“This would ensure cost reduction and facilitate entry in the market,” said OECD.
At the moment, Malaysia requires registering a truck as either a container haulier or a general cargo haulier and requires a vehicle permit for the chosen activity.
“The requirement reduces utilisation of a single-vehicle, but international comparison shows that this distinction does not appear to be necessary,” it said.
Further opening of domestic shipping market
According to the World Economic Forum Global Competitiveness Report 2019, Malaysia ranked five out of 141 countries in terms of liner shipping connectivity, while its seaport services ranked 19 out of 141 countries in terms of efficiency.
The country has a developed port sector, with two of its ports, Port Klang and Port of Tanjung Pelepas, ranking 12 and 18 worldwide in terms of throughput.
However, the OECD report highlighted that foreign ships are only allowed to operate in Malaysian territory if no domestic ship is available to provide the required specialised service, noting that the exception favours domestic firms and provides limited authorisation to foreign vessels to operate.
“It may be difficult for applicants to foresee whether they will be granted a special permit due to the Domestic Shipping Licensing Board’s discretion and the need for approval from the Malaysia Shipowners’ Association (Masa).
“Although applicants can now apply online for an electronic domestic shipping licence, the administrative burden of providing a long list of documents, the uncertainty surrounding the granting of the special permit and the short duration of any eventual permit might discourage foreign shippers from applying for a special permit,” said OECD.
Therefore, it recommends the further opening up of the domestic shipping market — and if restrictions are maintained, a more efficient application procedure should be introduced and guidelines provided to give applicants more legal certainty.
“Any special permit granted should have a longer duration. It should also be clarified that Masa’s response is only to advise and that its decision is not binding on the ministry,” it said.
The report also suggested introducing clear requirements for applicants requesting a licence for maritime transport to reduce cost and facilitate market entry.
“Assess whether there is private interest in providing pilotage services. If so, create an appropriate legal framework so that piloting services can be tendered on fair and nondiscriminatory terms to guarantee competition for the market,” said OECD.
Other logistics sectors
In Malaysia, the freight market is fragmented with approximately 3,000 service providers that hold customs brokerage licences, and around half of them are members of the Federation of Malaysian Freight Forwarders (FMFF), the OECD said.
“The courier, express and parcel market recorded a total revenue of US$1.4 billion (US$1=RM4.17) in 2019 and is expected to reach US$3.2 billion by 2025, recording a growth rate of 14.4 per cent,” it said, adding that in 2019, Malaysia’s revenue share represented 17.8 per cent of the Asean market.
However, it noted that there is no national legal framework for general-purpose warehouses.
The OECD suggested for the authorities to revise the requirements for obtaining a licence for bonded warehouses, including requisites for minimum space and minimum value.
“This may encourage market entry and ensure courier service providers are not subject to price regulation to encourage price competition,” it said.
Ratify AFAMT agreement
Malaysia has been a party to several Asean agreements related to logistics.
The Logistics and Trade Facilitation Masterplan (2015-2020) is overseen by the National Logistics Taskforce with the vision for Malaysia to become “the preferred logistics gateway to Asia”.
However, the report said Malaysia has not ratified the Asean Framework Agreement on Multimodal Transport (AFAMT) which regulates liability, documents and operations of multimodal transport operators across Asean countries.
“Malaysia has targeted to ratify the AFAMT in 2020/2021.
“Nevertheless, the country has finalised and endorsed the implementation framework of the AFAMT,” it said.
In the report, the OECD recommends for Malaysia to ratify the AFAMT and introduce specific provisions or a new law to incorporate it in the national legal system.
“Implementation of the framework would decrease costs for operators and increase their ability to provide services across Asean member states, enabling the geographic flow of goods and services,” it said.